Leading companies focus on cost reduction, but only few can deliver lasting resultsKYIV, 19 NOVEMBER 2008 – According to Ernst & Young’s survey Effective cost reduction, 90% of C-suite individuals believe that cost reduction is a business priority for their companies in the current market conditions. At the same time, two-thirds of respondents mentioned such performance improvement measures as working capital management and cost management of investment projects. Although companies believe costs need to be streamlined, extreme measures often do not deliver the expected results even in the short-term perspective. Thirty-seven percent of companies which have implemented cost reduction programs have seen growth of expenses in comparison with revenues in the first year of the program. It is even more difficult to ensure long-term efficiency: only 30% of companies managed to sustain their cost improvements over a three-year period. Respondents indicated that management will need to focus on aligning the suggested cost reduction measures to companies’ strategic goals. Only then can companies enjoy long-term benefits of cost reduction initiatives, they said. “This is critical in the context of the global economic downturn and even more important here in Ukraine. Rash decisions concerning cost optimization can do more harm than good. Companies must fight the temptation to adopt quick measures which might jeopardize the company’s strategic goals," says Adlai Goldberg, Head of Business Advisory at Ernst & Young Ukraine. "Decisions about what measures to take during these uncertain times need to consider short-term necessity within the company’s broader strategic context. Perhaps today’s challenges can even turn into opportunity.” About the survey Working with the Economist Intelligence Unit in July 2007 and July 2008, we surveyed 251 and 330 companies respectively from around the globe, all with revenues of US$1 billion or more. The sample was across all industry sectors, with 17% and 30% respectively from the financial services industry. Respondents were all senior executives, with one-third at the Senior Vice President, Vice President or Director level. Their responsibilities were mostly in the fields of strategy and business development, general management and finance, with good representation from marketing and sales functions, risk, IT and operations and production. About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 130,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential. In Ukraine Ernst & Young established its practice in 1991. Ernst & Young Ukraine now employs more than 570 professionals providing a full range of services to a number of multinational corporations and Ukrainian enterprises. For more information, please visit ey.com/ukraine. Natalia Partach |
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